Download our 2019/2020 Personal Tax Year End Planning Guide here.
As Rishi Sunak got up to present his first Budget, many were watching to see how he would juggle the forces of Brexit, Coronavirus, austerity and public services, in the first Budget for a brand-new Chancellor in a brand-new Government.
Coronavirus is at the forefront of most people’s minds, and Mr. Sunak prioritised measures supporting both the NHS and UK business to ensure we would get through it together. As well as committing a £5 billion emergency response fund for the NHS, with as much as 20% of the country’s workforce predicted to be off work at any one time, measures supporting small business and those unable to work were top of the Chancellor’s list.
The Chancellor also focused on infrastructure spending, education, encouraging business development and innovation, housing and the environment.
The Budget included significant spending on public services, matched with significant additional borrowings. The key points from the Budget are below. You can also view our Spring Budget guide here.
• Lifetime limit for Entrepreneurs’ Relief reduced from £10m down to £1m.
• No changes to inheritance tax.
The headline change was to decimate the amount of Entrepreneurs’ Relief available to individuals selling a business, with the lifetime limit cut from £10m to £1m. There are no corresponding changes to the more recently introduced Investor’s Relief. Coupled with the lack of changes to Inheritance Tax, this could mean more entrepreneurs end up retaining their business until death, rather than stimulating growth through a business sale.
• Income limits for tapering of pension contributions increased by £90k, giving an income threshold of £200k.
The increase in income limits for tapering of pension contributions is a direct response to the concerns of doctors who were being penalised for taking on additional hours and responsibilities, limits that had been described by the IFS in April 2019 as “incoherent” and as having a “damaging effect on work incentive”. The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.
• Personal tax rates and allowances generally frozen at 2019/20 rates.
• ISA contribution limit also frozen at £20,000.
• Capital Gains Tax allowance increased to £12,300 per annum (£6,150 for trustees).
Other than a small increase in the lower limits for National Insurance contributions, most personal tax rates and allowances have been frozen at the 2019/20 rates, so fiscal drag will mean the overall effect is akin to a tax increase. The ISA contribution limit has also been frozen at £20,000 for another year.
• Corporation tax frozen at 19 per cent
Whilst the 17% rate was attractive, this move is not at all unexpected.
• Investment in Research & Development (R&D) to increase to £22bn a year
• The rate of Research & Development Expenditure Credit (RDEC) will increase from 12% to 13%
With the aim of continuing to keep the UK at the forefront of research and innovation this is a further move to attract businesses to invest in R&D. This welcome change will mean that large companies (more than 500 employees), and some SMEs will be able to claim an increased additional deduction in respect of qualifying R&D expenditure. This will go some way to mitigating the withdrawal of the proposed 2% reduction in the main rate of corporation tax.
• R&D PAYE Cap extended for 1 year to 1 April 2021
It had previously been announced that there would be a cap on the repayable tax credits for loss making companies of three times the company’s payroll taxes. This was going to have a negative impact to start up and smaller companies. The deferral for 12 months is a benefit to such companies.
• Capital Allowances: Structures and Buildings allowance to increase to 3%
• Digital Services Tax – payments due on an annual rather than quarterly basis
• Corporate Capital loss restriction: the 50% restriction on capital losses for companies in insolvent liquidation to be removed
• Abolishing VAT on e-publications
The abolishment of VAT on e-publications will be welcomed by the publishing industry, but the extent of zero-rating still requires clarification.
• A zero rate of VAT to be charged on women’s sanitary products
The plans to remove VAT from women’s sanitary products are a result of Brexit and the UK Government’s newfound ability to make its own tax laws.
• HMRC investing in anti-tax avoidance measures
The Government will provide additional funding for HMRC to invest in tax anti-avoidance measures in an effort to prevent tax leaking out of the system and into the hands of criminals.
• Government is legislating to clarify when fund management services are exempt from VAT
The VAT on fund management introduces into UK legislation matters which were previously established in ECJ case law [ATP and Fiscale Eenheid].
• An industry working group to review how financial services are treated for VAT purposes is being set up
This review of VAT on financial services has long been mooted and its formation is welcome news.
• From 1 January 2021 postponed accounting for VAT will apply to all imports of goods, including from the EU
Postponed accounting for VAT will give a cash flow benefit to VAT registered importers and is a welcome move. Non-VAT registered businesses and individuals will still have to pay the VAT at the time of import.
• Simplified rules for the VAT treatment of intra-EU movements of call-off stock, allowing businesses to delay accounting for VAT until the goods are called-off
The simplification will bring a welcome cash flow saving to ‘just in time’ businesses who hold stock until their customers needs it.
• Special VAT status will be granted to the welsh-based language channel S4C.
Special VAT status allows the specified body to recover any VAT it incurs on expenditure.
• Employment Allowance increased by £1,000 to £4,000 from April 2020.
The increase in Employment Allowance for eligible businesses and charities will enable them to claim an increased reduction in their secondary Class 1 NIC liability.
• Van and van fuel benefits increased to £3,490 and £666 respectively from April 2020.
• New cars provided to employees and available for private use that are first registered after 6 April 2020 will be taxed according to CO2 emissions figures measured under Worldwide Harmonised Light Vehicle Test Procedure System (WLTP).
For cars measured under WLTP the appropriate percentage is reduced by 2% in 2020/2021 compared to the current percentages for cars under the current emissions basis to support the introduction of WLTP.
• Tax guidance for the self-employed.
The intention is to make it easier for self-employed people to navigate the tax system. Government will this summer launch new interactive online guidance for taxpayers with non PAYE income.
• Apprenticeship Levy.
The Government will look at how to improve the working of the levy to support large and small employers in meeting the long term skills needs of the economy.
• £500m to be provided over the next 5 years to develop the electric vehicle charging infrastructure.
This will include rapid charging fund to help businesses with the cost of connecting high powered charge points to the grid where the cost would otherwise prevent private sector investment.
• Lower NIC threshold from which NICs payable up to £9,500 from April 2020.
This measure will take £1.1 m out of Class 1 and Class 4 NIC entirely. This is seen as the first step in meeting government ambition to increase the threshold to £12,500.
• Maximum Homeworking rate income tax deduction up from £4 to £6 per week from April 2020.
• The proposed IR35 changes for introduction into the private sector are operative from April 2020.
This confirms the position and that the new rules for review and appropriate deduction of income tax and NICs will apply for payments made for services provided post April 2020.
• An NIC holiday will be available from April 2021 for employers of veterans in their first year of civilian life.
This measure confirms employment income is exempt from NICs up to the upper earnings limit on the veteran’s salary.
• Reduction in company car and van rates.
Rates are reduced by 2% in 2020/21 for cars first registered after 6 April 2020. Rate will increase in 1% increments for two following tax years and then be frozen until 2024/25. Vans will attract a nil benefit in kind if they are zero emission vans.
• Tax avoidance in the Construction Industry Scheme. Further action is intended to raise an additional £4.7bn.
The Government is intending to legislate to prevent non-compliant businesses from using the CIS to claim tax refunds to which they are not entitled.
Infrastructure and Environmental Measures
• Levy on gas to rise, but be frozen on electricity.
• £500m for rollout of new electric car charging points.
• Red diesel subsidies will be scrapped for most sectors, excluding agriculture, fish farming, rail and home heating.
• New plastic packaging tax on materials with less than 30% recycled content from April next year.
• Money for flood defences doubled over the next six years to £5.2bn.
• Road building and upgrading plans equal to “£27bn of tarmac”.
• Investment in broadband worth £5bn to help expand rural connectivity.
• New carbon capture “clusters” to be built by 2030, at a cost of £800m.
• Affordable housing programme expanded with extra £12bn of funding.
• Fiscal stimulus package worth £30bn.
• £5bn coronavirus emergency response fund for the NHS.
• £500m hardship fund to support those who are most vulnerable.
• Statutory Sick Pay will be made available from day one, including those who self-isolate.
While the changes to statutory sick pay for those self-isolating from Coronavirus is welcome news for some employees, the impact on smaller businesses is as yet unknown. An employee receiving statutory sick pay, currently set at £94.24 per week, will now receive an extra £40.
• Government to backstop sick pay for small business for up to 14 days.
Businesses used to be able to recover statutory sick pay costs from the Government, but this was abolished from 6th April 2014. However, considering the current situation there have been calls from business unions for the Government to look to reverse this measure. These measures have also prompted workers’ unions to ask the Government to consider extending the eligibility of sick pay to zero hour and self-employed workers, as they deem the current system unfair to these groups of workers.
• Temporary removal of minimum floor for universal credit.
• Temporary loan scheme to support small and medium sized businesses, with Government guarantees of 80 per cent of losses with no fees.
Other points to note…
• Measures to clampdown on tax avoidance aimed at helping HMRC recoup £4.4bn of unpaid taxes.
• Increased lending for exporters worth £5bn.
• New safety fund worth £1bn to deal with unsafe cladding on buildings over 18m.
• Funding worth £650m to help rough sleepers.
• Stamp duty surcharge of 2 per cent on non-resident buyers. The equivalent tax in Scotland is LBTT and we need to wait and see if this measure is mirrored by the Scottish Government.
• £130m to extend start-up loans.
• Plan to move 22,000 civil servants outside central London.
What should you do next?
If you would like to find out more about how the Budget will affect you, please contact your usual Campbell Dallas advisor or:
Budget Update 2020 Webinar
Our colleagues are holding a Budget Update Webinar today at 1.00pm-2.30pm to provide insight and analysis on the outcomes of the Budget and how they may impact you and your business.
If you would like to join, please register here.